Tucked away in a transportation bill signed last December by President Barack Obama is a provision requiring the IRS to refer seriously delinquent taxpayers to the U.S. State Department for denial or revocation of a passport.

So you may be wondering what exactly a “seriously delinquent taxpayer” is…

To qualify as seriously delinquent, the taxpayer must owe the IRS over $50,000, including assessed taxes, interest, and penalties. Second, a notice of a lien must have been filed and all administrative appeal rights exhausted.

When sending the certification to the State Department, the IRS must provide notice to the taxpayer. Upon receipt of the certification from the IRS, the State Department is prohibited from issuing the seriously delinquent taxpayer a passport except for emergency or humanitarian reasons.

So there you have it. The IRS is the new Grinch in town with more power than ever.

by James S. LaHam, CPA, Senior Tax Partner

We recently talked about your actual chances of being selected for an IRS audit.

In this segment we are going to discuss how the IRS makes their audit selections. They use a secret formula known as “DIF,” which stands for Discriminatory Inventory Function. It scores your tax return for its potential to raise your taxes and has a pretty good track record as 80% of the returns selected result in more taxes.

We have figured most of the factors that are prevalent in the formula and listed them below:

If your itemized deductions exceeds 35% of your adjusted gross income (especially if you have a higher than average charitable contributions), you will score higher.

If you file a Schedule C, Small Business Schedule, and your business deductions exceed 63% of the gross income, you will be more at risk.

High income taxpayers in general score higher (especially those over 1 million of gross income).

Significant wages combined with Schedule C losses, or losses from partnerships and S-Corporations reported on Schedule E will ring up a higher score.

by James S. LaHam, CPA, Senior Tax Partner

The IRS is making their audit selection from 2014 tax returns. The selections are generally made 15 to 18 months after April 15, 2015. If you don’t get notice of an audit by October 31, 2016 (the bewitching hour), you are generally home free. Officially, they can pull an exam up to three years after filing, so you are not legally out of the woods until April 15, 2018.

Extended returns are open for exam up to 3 years after the date the IRS received your return, but the IRS usually selects returns between 15 and 18 months after you file. Also, sort of relax because if your income is over $200,000 your chance of audit is 2.61% or 1 out of 38. If your income is under $200,000 your chance of audit it 0.78% or 1 out of 132. Regardless, if you get selected, we can take over the exam and you may never even see the IRS Agent.

At Berman Hopkins Wright & LaHam, we strive to ensure that you are informed about important matters that may significantly impact your operations, cash flows and financial reporting.

As you may be aware, the Financial Accounting Standards Board (FASB) has been working for a number of years on changes to the standards for reporting leases and those changes are finally here!

The FASB released Accounting Standards Update (ASU) 2016-02, “Leases,” on February 25, 2016. The update provides new accounting guidance related to accounting for leases, and will have a significant impact on the reporting of operating leases. This new standard will be effective for non-public companies for fiscal years beginning after December 15, 2019. Early application is permitted, and the update will require a modified retrospective approach.

Although there is some time before this standard is effective, we recommend that you start learning about these changes now! As new leases are created between now and the effective date, it may be beneficial to understand how these leases will be accounted for after the change. The Journal of Accountancy has an article on the first steps to implementation of these new standards; click the link below to read more:

Or, if you would like to review the update in its entirety, you can visit www.FASB.org and download the complete update.

Berman Hopkins maintains a professional library that includes various resources about this new standard that will benefit your entity. Our professionals have access to these resources, are informed about the standard, and are monitoring implementation issues and guidance particular to your individual circumstances as they evolve and as information is disseminated. Finally, we are available to assist you and will continue to share information as appropriate.

We look forward to talking to you about how these standards may affect your financial reporting.

At Berman Hopkins Wright & LaHam, we strive to ensure that you are informed about important matters that may significantly impact your operations, cash flows and financial reporting.

In a blog post circulated during August of 2014 we informed of FASB’s publication of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers.

On July 9, 2015, the FASB agreed to give companies an extra year to comply with its landmark revenue recognition standard. As a result, the new U.S. GAAP rules now become effective for non-public entities in calendar year 2019, one year after the revised effective date for public entities. Two FASB members voted for a two-year delay in the standard, but were outvoted. Regardless, implementation of the new standard remains eminent. As such, understanding the requirements and their effect on your entity, including possible reconsideration of your contracts, how you conduct business, and reporting of those results, remains critical.

Berman Hopkins maintains a professional library that includes various resources about this new standard that will benefit your entity. Our professionals have access to these resources, are informed about the standard, and are monitoring implementation issues and guidance particular to your individual circumstances as they evolve and as information is disseminated. Finally, we are available to assist you and will continue to share information as appropriate.

Thank you,

Your Berman Hopkins Team

]]>Deadline Reminder for IRS Penalty Relief Programhttp://www.bermanhopkins.com/2015/05/12/deadline-reminder-for-irs-penalty-relief-program/
Tue, 12 May 2015 14:07:52 +0000http://www.bermanhopkins.com/?p=4445read more →]]>Last year, the IRS announced the launch of a one-year temporary pilot program to help small businesses that have failed to timely file certain retirement plan returns. Now the June 2 deadline for seeking relief is right around the corner. This article details how small businesses that qualify for the relief can preempt steep penalties of as much as $15,000 per return.

June 2 deadline looming on IRS penalty relief program for late retirement plan returns

Last year, the IRS announced the launch of a one-year temporary pilot program to help small businesses that have failed to timely file certain retirement plan returns. Now the deadline for seeking relief is right around the corner. Small businesses that qualify for the relief and file their late returns by June 2 stand to preempt steep penalties of as much as $15,000 per return. Businesses that aren’t eligible for the pilot program may qualify for relief under another program offered by the U.S. Department of Labor (DOL).

Filing obligations and potential IRS penalties

• Form 5500, Annual Return/Report of Employee Benefit Plan,• Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan,• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, and
• Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits.

Form 5500-EZ filers include one-participant plans that are exempt from ERISA.

Under the IRC, taxpayers that don’t timely file an annual return of employee benefit plans or returns and reports for employee stock ownership plans are subject to a penalty of $25 for each day the failure continues, up to $15,000 per return or statement. The penalty for failing to timely file an actuarial report for employee benefit plans is $1,000 for each failure. (No penalty will be imposed if the failure to timely file was due to reasonable cause.)

Pilot program eligibility

The pilot program provides penalty relief to plan administrators and plan sponsors of certain small business and business partnership retirement plans — known as “one-participant plans” — that aren’t subject to ERISA for the plan year that’s delinquent in filing. Certain foreign plans are also eligible. Applicants for relief need not pay any filing fee or other payment. Relief isn’t, however, available if the IRS has already issued a penalty notice (CP 283 Notice, Penalty Charged on Your 5500 Return) to a plan sponsor or administrator for a late return.

For purposes of the pilot program, a one-participant plan is a plan with one or more participants that covers only the owner of the entire business (or the owner and the owner’s spouse) or one or more partners (or partners and their spouses) in a partnership. The plan must not provide benefits for anyone except the owner (or the owner and the owner’s spouse) or one or more partners (or partners and their spouses).

The administrator or sponsor of a retirement plan maintained outside the United States for primarily nonresident aliens may also be eligible for penalty relief. The employer that maintains the plan must 1) be a domestic employer or a foreign employer with income derived from sources within the United States, including foreign subsidiaries of domestic employers, and 2) deduct contributions to the plan on its U.S. income tax return.

Relief requirements

To obtain penalty relief under the pilot program, a plan administrator or sponsor must submit a completed Form 5500 Series return to the IRS, including all required schedules and attachments, for each plan year for which relief is sought. Multiple returns — and returns for more than one plan — can be included in a single submission. Returns must be submitted through the mail; they can’t be filed through the DOL’s ERISA Filing Acceptance System 2 (EFAST2).

For late returns for 2008 plan years and earlier, the applicant must file the specific Form 5500 return that was required for the plan year. For returns for 2009 plan years and later, only the Form 5500-EZ appropriate for the plan year may be submitted.

Applicants must mark the top margin of the first page of each delinquent Form 5500 Series return submitted with red letters reading “Delinquent return submitted under Rev. Proc. 2014-32, Eligible for Penalty Relief.” In the absence of such markings, the IRS may treat the return as ineligible for relief under the pilot program — and assess all applicable penalties if the plan administrator or sponsor can’t establish that the failure to timely file was due to reasonable cause.

Relief for plans covered by ERISA

Although plans covered by ERISA aren’t eligible for relief under the pilot program, they may qualify for reduced ERISA late-filing penalties under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) program. The IRS determined that, in certain circumstances, it would waive its own late-filing penalties for plans that use the DFVC program.

Act now

The IRS pilot program was established for only one year, and the IRS hasn’t yet indicated that the program will be extended or made permanent. Get in touch with your advisor now if you’ve overlooked or fallen behind on the reporting requirements for your retirement plan so you can take advantage of the program before it expires.

Name: Laura Anne PrayAge: 32Job title or profession: CPA and Audit Manager for Berman Hopkins Wright & laHam, CPAs and Associates, LLPFamily: Married to Joshua for eight yearsWhy did you choose this career? I have always been interested in business, and after taking a few of the general business requirement courses at the University of Florida, I discovered I really enjoyed understanding the financial success and downfalls of different companies and the effect that accounting had on these. Working in public accounting has given me the opportunity to work with a variety of clients in a number of different industries. I love that I’m always meeting new people and learning about new companies and industries, and how I can help them.

Best business advice you’ve received along the way: A mentor of mine is always reminding me in one way or another that we have to believe in ourselves and make it happen; no one else is going to do it for us. This is such a great piece of advice, and I find myself repeating it often. My husband is also a very hard worker who inspires me and reminds me to never be afraid of a little hard work; it’s amazing what you can accomplish if you try.

Type of cell phone and why: Samsung S4. I love any and all Samsung products because I am able to switch from one product to another and have all my information with me. I think that I finally have my S4 set up the way I want it, so I don’t want to upgrade until I have to.

Spare-time activities: Reading. I enjoy any genre, whether it’s biography, history, business, or fiction, and am always reading multiple books at a time. I also love to travel and experience new adventures and places with my family and friends. I can’t live without my Florida Gators and spending time in or on the water.

I enjoy the Space Coast because… it’s where I grew up, and I love my hometown. Besides having my family and friends here, the Space Coast has everything else someone could want – the beach, local shopping and restaurants with great theater venues – all while maintaining the special historical charm of our community.

I’d enjoy it more if… our beautiful spring weather would last just a little bit longer than it usually does. Since I work for a CPA firm, I don’t get outside much until after April 15.

Each week, FLORIDA TODAY speaks with a young professional in Brevard County. Suggestions should be sent to Ilana Kowarski at 321-242-3640 or ikowarski@floridatoday.com.

Monitoring Key Financial Reports and Indicators for Commissioners

Description:
This session will present to Commissioners the BIG PICTURE dealing with key areas they should focus their time on for proper oversight and monitoring. This session will specifically cover the importance of the following areas: Budget to Actual reports, Occupancy, SEMAP (Section 8 Management Assessment Program, PHAS (Public Housing Assessment Program) and will briefly touch on the inherent limitations of the annual audit. The course will include a top side approach to the key activities that drive the components of several of the main indicators for both SEMAP and PHAS. It is geared for commissioners with the goal to raise awareness of where they need to focus their oversight on for sound operations and successful compliance and HUD rules and regulations.

The IRS recently released guidance on two significant areas that affect many businesses – the Work Opportunity Tax Credit (WOTC) and the tangible property regulations, which we addresses in our last Tax Update. Both pieces of guidance apply to 2014 income tax returns.

Extension for meeting WOTC certification requirement

The WOTC was among those provisions extended through Dec. 31, 2014, by the Tax Increase Prevention Act of 2014, which was passed last December. The credit is for employers that hire individuals who are members of targeted groups, including certain qualified veterans.

Taxable employers that hired targeted group members can claim the tax credit as a general business credit against their income tax. Before an employer can claim the credit, it must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a targeted group member. The employer normally must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for the employer.

The retroactive extension of the WOTC for 2014 at the end of the year, however, meant that many employers would need additional time — the 28-day period had already expired for many of the covered employees hired in 2014. Thus, the IRS has given employers until April 30, 2015, to request certification from their DLAs for members of targeted groups hired in 2014.

A timely request for certification doesn’t eliminate the need for an employer to receive a certification before claiming the credit, though. So employers may need to file for a tax return extension.

Capitalizing or Deducting Under Tangible Property Regulations for Tax Year 2014

In late 2014 the IRS finalized the proposed regulations governing the tax treatment of amounts paid to acquire, produce or improve real or tangible property, as well as the tax treatment of certain dispositions of these items. The regulations apply to tax years beginning on or after January 1, 2014. All businesses that have depreciable assets, materials and supplies, spare parts, repairs and maintenance and/or property improvements will be affected. In general, the new regulations are favorable to the taxpayer via accelerated tax deductions.

The new regulations mandate a new approach to defining commonly used terms, such as supplies, repairs, maintenance, improvements, and units of property and whether they should be capitalized or expensed. The IRS offered some opportunities by allowing for routine maintenance safe harbor, which allows taxpayers to expense certain costs that are routine and recurring, de minimis safe harbor for supplies and acquisition costs, and a safe harbor election for small taxpayers to deduct certain improvement costs.

Because the IRS defines many of the changes that must be adopted as changes in accounting methods, a special form must be prepared and filed for all businesses affected by the regulations. Unless you qualify for small taxpayer relief, a Form 3115, Application for Change in Accounting Method, must be filed with most 2014 tax returns that include businesses that have depreciable assets, materials and supplies, spare parts, repairs and maintenance and/or property improvements. Failure to appropriately file Form 3115 could result in lost deductions in current and future years. For all years (except 2014), the IRS charges a fee to process Form 3115, some as high as $7,000. The IRS provided some relief by waiving the filing fees for 2014 tax years and by providing an exception from Form 3115 filing for small taxpayers.